Compare costs by using the Total Cost of Ownership Calculator


Before Tailwind Traders takes its next steps toward migrating to the cloud, it wants to better understand what it spends today in its datacenter.

Having a firm understanding of where the company is today will give it a greater sense of what cloud migration means in terms of cost.

In this unit, you'll see how the Total Cost of Ownership (TCO) Calculator can help you compare the cost of running in the datacenter versus running on Azure.

What's the TCO Calculator?

The TCO Calculator helps you estimate the cost savings of operating your solution on Azure over time compared to operating in your on-premises datacenter.

The term total cost of ownership is used commonly in finance. It can be hard to see all the hidden costs related to operating a technology capability on-premises. Software licenses and hardware are additional costs.

With the TCO Calculator, you'll enter the details of your on-premises workloads. Then you can review the suggested industry-average cost (which you can adjust) for related operational costs. These costs include electricity, network maintenance, and IT labor. You're then presented with a side-by-side report. Using the report, you can compare those costs with the same workloads running on Azure.

The following image shows one example:

Two bar graphs shown side by side that compare hardware, software, labor, and other costs in the datacenter versus on Azure.


You don't need an Azure subscription to work with the TCO Calculator.

How does the TCO Calculator work?

Working with the TCO Calculator involves three steps:

  1. Define your workloads
  2. Adjust assumptions
  3. View the report

A visual representation of the three steps: define your workloads, adjust assumptions, view the report.

Let's take a closer look at each step.

Step 1: Define your workloads

First, you'll enter the specifications of your on-premises infrastructure into the TCO Calculator, based on these four categories:

  • Servers

    This category includes operating systems, virtualization methods, CPU cores, and memory (RAM).

  • Databases

    This category includes database types, server hardware, and the Azure service you want to use, which includes the expected maximum concurrent user sign-ins.

  • Storage

    This category includes storage type and capacity, which includes any backup or archive storage.

  • Networking

    This category includes the amount of network bandwidth you currently consume in your on-premises environment.

Step 2: Adjust assumptions

Next, you'll specify whether your current on-premises licenses are enrolled for Software Assurance, which can save you money by reusing those licenses on Azure. You'll also specify whether you need to replicate your storage to another Azure region for greater redundancy.

Then, you can see the key operating cost assumptions across several different areas, which will vary among teams and organizations. These costs have been certified by Nucleus Research, an independent research company. For example, these costs include:

  • Electricity price per kilowatt hour (KWh)
  • Hourly pay rate for IT administration
  • Network maintenance cost as a percentage of network hardware and software costs

To improve the accuracy of the TCO Calculator results, you can adjust the values so that they match the costs of your current on-premises infrastructure.

Step 3: View the report

Choose a timeframe between one and five years. the TCO Calculator generates a report that's based on the information you've entered. Here's an example:

Two pie charts comparing total cost of ownership in the datacenter versus on Azure. For the datacenter, total cost of ownership is $777,258. The same workload on Azure is estimated at $107,569.

For each category (compute, datacenter, networking, storage, and IT labor), you can also view a side-by-side comparison of the cost breakdown of operating those workloads on-premises versus operating them on Azure. Here's an example:

A diagram showing the side-by-side cost breakdown across compute, datacenter, networking, and storage categories.

You can download, share, or save this report to review later.

In the next unit, you'll use the TCO Calculator to help the Tailwind Traders team understand their total costs.